Don't do (inelegant) crimes
or other kinds of crime either I guess
Lots of news this week! So much news that I couldn’t fit it all under the length limits that GMail imposes for some reason. That means paid subscribers get a bonus post with all the additional content I couldn’t fit into the main post! Not a subscriber yet? No worries! This post will unlock for everyone in 48 hours.
In this issue:
Sometimes I want to buy a gumball (reader submitted)
They can’t seize Bitcoin but they can seize you (reader submitted)
A rug by any other name
Don’t get tattoos of your investments
Sometimes I want to buy a gumball
Regarding speed, it feels like you are technically correct, but it feels like the wrong argument to make considering … the technologies that win almost always favor the consumer over any other party. Do we really see people ever making coffee purchases with bitcoin and is that even relevant to bitcoin being successful? Also regarding block sizes, isn't there still a benefit to being able to split a dollar into 4 quarters? It doesn't mean that 4 quarters is worth more, but sometimes I want to buy a gumball that costs $0.50. — MJ
Last Wednesday I wrote about how Bitcoin is the fastest money in human history. One of the things we talked about is how Visa only seems fast to consumers, but is actually very slow for merchants. It’s quick if you are buying coffee, but slow if you are selling it! Still, convenience for consumers usually wins: despite my clever criticisms most coffee is still sold via credit cards and will probably continue to be.
The point isn’t that Bitcoin would be a better way to buy coffee (clearly it wouldn’t be) the point is that we don’t buy coffee with money at all — we use debt. We could just as easily denominate that debt in BTC as USD if we wanted to. When payments are small and risk is low debt offers more convenience and speed than money, so credit will always makes more sense for buying coffee even in a world where everything was priced in Bitcoin.
Splitting the work of mining into smaller blocks is actually worse than it seems. First because security comes from the work being done by the network not from the blocks that the work is stored in. Miners on the network are already creating expense for a would-be double-spender even before the transaction is confirmed. That means that more frequent checkpoints aren’t actually buying you as much as it might seem.
More importantly, when a miner discovers a valid block they get a small but material head start mining the next block, because everyone else on the network has to download and confirm the last block before they can start mining on top of it. Smaller block times make that advantage larger, which rewards the winners and causes mining to eventually centralize. This thread explores the math behind that intuition in greater detail.
They can’t seize Bitcoin but they can seize you
Last week we talked about how Bitcoin could still be decentralized even if most individual users were priced out of the network and forced to use Bitcoin banks. Basically as long as Bitcoin itself is decentralized no one will be able to impose regulations on Bitcoin banks and new banks can emerge to offer whatever services the market is asking for, regardless of government regulation.
The fact that the government is powerless to stop Bitcoin doesn’t mean they are powerless to stop anyone who is using Bitcoin, of course. If you buy or sell your Bitcoin on an exchange that practices KYC/AML it will be relatively trivial to tie your identity to the public Bitcoin transactions and come knocking on your door to ask awkward questions. They can’t seize your Bitcoin but they can still seize you.
Nothing in this newsletter is ever legal advice, but I do not recommend using a bank account tied to your legal identity for crimes. At a minimum it is inelegant. But there are other ways to acquire Bitcoin. You can buy them from a peer-to-peer marketplace like localbitcoins.com or you could sell goods/services priced in Bitcoin. If you are particularly committed you can buy a second-hand mining rig and use it to mine some fresh bitcoin completely anonymously.
Right now most Bitcoin spending involves trading it for fiat first, which gives governments a lot of leverage since they control access to traditional financial networks. But the more you can buy and sell things for Bitcoin directly (sometimes called "the circular Bitcoin economy") the less important control of the exchanges where you can sell Bitcoin for fiat will be and less power governments will have.
Government control extends only to the borders of Bitcoin, not its interior. The wealth that enters the Bitcoin economy is beyond any government’s control. They only have power over the wealth that wants to go back.
A rug by any other name
Disclaimer: I gave my wife an Azuki that she still has, along with the airdropped Beanz that came with it. We don’t have any intention of selling.
Anonymous founder of the Azuki NFT collection Zagabond published a blog post yesterday detailing his exploits launching and subsequently abandoning three different NFT projects within a month shortly before launching Azuki. He described the experience as a journey of learning.
There are a range of perspectives about what was promised by those projects compared to what was delivered, but what is definitely true is that a lot of the people involved felt ripped off and Zagabond deliberately abandoned his identity and started a new one in between each project. It doesn’t look good.
At one point the Azuki floor was as high as ~32 ETH, at time of writing it is ~10 ETH, having fallen briefly as low as ~8 ETH. The Azuki companion project Beanz went from a floor price of almost ~7 ETH to a floor of ~1.2 ETH. Zagabond held a Twitter space to defend himself and released a half-hearted non-apology:
One interesting thing to ask is why this information is coming to light now. Zagabond might pretend to be surprised by the anger but choosing to hide his identity in the first place suggests that he knew how people would react. Maybe he was trying to dump the information on a day when the markets were distracted — or maybe someone else forced him to get ahead of the news himself. As of now Zagabond’s identity remains a secret — but the story may not be over yet.
Other things happening right now:
Bitcoin developer Somsen Ruben proposed a new technology called Silent Payments that would let individuals publicly share an address that anyone can use to send them a payment without sacrificing their privacy. Rather than just re-using a normal Bitcoin address and letting anyone who knows your address track your funds, Silent Payments lets the sender calculate a unique address from their private key and your public key — only you and the sender know the payment has happened and no off-chain communication was needed. Silent Payments also doesn’t require any changes to Bitcoin — although Bitcoin wallets would need to implement some new logic.
Here’s an interesting presentation from Bitcoin Developer Obi Nwosu on Federated Chaumian Mints (or FediMint). FediMint is a protocol that allows a community of Bitcoin users to custody their Bitcoin with in a shared wallet whose keys are protected by a council of guardians without actually disclosing transactions or account balances to those guardians. The result splits the difference between self-custody and third-party custody while achieving many of the benefits of both worlds.
The market is currently pricing senior Microstrategy bonds at $0.84 to the dollar and lower tranches of debt at $0.53 to the dollar. The bond market is essentially betting Microstrategy will go bankrupt and there probably won’t be enough money leftover to pay down all their debt. Microstrategy can’t be liquidated by a Bitcoin crash however — their debt has a two year term. As long as Saylor and the board don’t lose their nerve they can ride it out for a while — although not as long as some previous bear markets have lasted.
You portfolio is probably down this week but at least you probably don’t have a giant Luna themed bicep tattoo. Hopefully, anyway.